Saturday, October 19, 2019

'Australian banks have remained very sound by international Research Paper

'Australian banks have remained very sound by international standards,despite the global financial turmoil' observed the IMF, and impact on Australian Bank - Research Paper Example It is apparent that if a residential mortgage shock is joined with corporate losses, it will definitely harm banks. Local reports on Australian banks performance indicated that a stress test is based on a worse case scenario that would categorize other banks in the world in the same position (IMF 2010). In fact, it is argued that although such observations from the IMF stand to be correct, Australian banks were believed to obtain considerable aid from taxpayers and the Reserve Bank. Besides, it is argued that Australian federal government helps banks in events of crisis. Overall, reports have indicated that the Australian banking system was resilient during global financial crisis due to intensive supervision and regulation. Although, the four major Australian banks capital ratios are place below global average for large banks, their conservative approaches in implementing Base II framework indicates that their headline capital rations underestimate their capital strength. The major financial soundness indicators that these banks concentrated on include profitability, capital adequacy, asset quality and provisioning, and liquidity. On particular, the Australian banks’ loss given default rates are arguably higher than those of several other countries. Additionally, higher risk weights were endorsed for certain residential mortgages. Moreover, reduced risk weights, which are allowed in the Basel II framework’s standardized approach, were introduced for retail lending (IMF 2010). Nevertheless, the risk weighted assets numbers can not be comparable across nations. All in all, due to APRA’s conservative eligibility and deduction rules, Australian banks have a propensity of holding higher quality capital. According to RBA, in regard to Basel III requirements, banks will need to hold more and higher quality capital. In light with this, the Australian banks can be argued

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